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2018 Federal Budget - Tax support for clean energy

Canada’s Finance Minister Bill Morneau delivered the government’s 2018 federal budget on February 27, 2018. As part of the budget’s tax proposals, the government is extending an existing tax incentive measure to encourage investment in clean energy equipment (known as Class 43.2 property) for an additional five years.

The capital cost allowance system provides an accelerated capital cost allowance rate for Class 43.1 and 43.2 properties as an incentive to encourage businesses to invest in specified clean energy generation and conservation equipment.

Class 43.1, which provides an accelerated capital cost allowance rate of 30% per year on a declining balance basis, is available for a variety of equipment that generates or conserves energy by:

using a renewable energy source (e.g., wind, solar, or small hydro),

using a fuel from waste (e.g., landfill gas, wood waste, or manure), or

making efficient use of fossil fuels (e.g., high efficiency cogeneration systems, which simultaneously produce electricity and useful heat).

Class 43.2, which was introduced as a further incentive in 2005 and provides an accelerated capital cost allowance rate of 50% per year on a declining balance basis, is available for property acquired before 2020 that would otherwise be included in Class 43.1.

Budget 2018 extends Class 43.2 eligibility by five years so that it is available for property acquired before 2025 that would otherwise be included in Class 43.1.

For more information on Class 43.1 and 43.2, please refer to the Technical Guide to Class 43.1 and 43.2, although note that the guide does not reflect Budget 2018’s proposal to extend Class 43.2 eligibility to 2025.

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